Chapter 6—Receivables: Selling a Product or a Service Key
1. The major activities of a business include all BUT which of the following?
2. Which type of the major activities of a business are best described as those events that raise money by means
other than operations?
3. Which type of the major activities of a business are best described as those events involve the purchase of
assets for use in the business?
4. Which type of the major activities of a business are best described as those events that are associated with the
primary purpose of a business?
5. Buying inventory is an example of a(n)
6. Selling property, plant, and equipment is a(n)
7. Selling additional shares of stock is a(n)
8. Selling products or services is a(n)
9. Investing in stocks or bonds of another company is a(n)
10. Revenues are most often recognized when
11. The accounting term for the recording of a sale through a journal entry is
12. The two criteria that need to be met in order revenue to be recognized are
13. The Talmage Company owns several shopping malls. One of the shopping malls is undergoing an
underground renovation. Copeland Construction is the construction company that is performing these
renovations. According to GAAP, when is the most appropriate time to recognize revenue from this
construction project?
14. Sally is a college student who decided that she spends entirely too much time inside of the library studying.
She decided to join a health club in order to become more active. After researching several Health Clubs and
Gyms, Sally decided to purchase a membership at Deseret Health Club. Sally bought a contract for one year.
Upon signing this contract, Sally agreed to pay an upfront membership fee, which will ensure use of the health
facilities during the full year. She also agreed to pay a monthly fee that will be paid at the beginning of each
month during the length of the contract. According to GAAP and assuming that the up-front fee does not relate
to a specific activity and is nonrefundable, when is the best time for Deseret Health Club to recognize the
revenue for the up-front fee paid by Sally?
15. Goofy Golf, sells high-quality golf clubs. On May 9, Goofy Golf sold five sets of golf clubs at a price of
$500 each. Each set was sold for $100 cash and the rest on credit. The journal entry to record the recognition of
revenue is
16. On June 30, Parrott Company sold goods for $800 on account. The journal entry to record the recognition of
revenue would include
17. Which of the following accounts would normally be found on the income statement?
18. Which of the following accounts would normally be found on the income statement?
19. Sales Discounts is which type of account?
20. Sales Returns and Allowances is which type of account?
21. The difference between gross sales and net sales is
22. Which of the following is NOT a cash control procedure?
23. Goofy Golf, sells high-quality golf clubs. On May 9, Goofy Golf sold five sets of golf clubs at a price of
$500 each. Each set was sold for $100 cash and the rest on credit. On June 9, Goofy Golf collected the rest of
the cash on the sale. The journal entry to record the collection of cash on June 9 is
24. Charles Company sells foods wholesale. On May 15, Edwards sold 400 cases of beans to Robin Company
for $8 per case with terms of 2/10, n/30. On May 25, Robin Company paid Charles the full amount due. Given
these data, the entry to record the sale of beans on May 15 would include a
25. Charles Company sells foods wholesale. On May 15, Charles sold 400 cases of beans to Robin Company for
$8 per case with terms of 2/10, n/30. On May 25, Swoops Company paid Edwards the full amount due. Given
these data, the entry to record the collection of cash on May 25 would include a
26. Edwards Company sells foods wholesale. On January 15, Edwards sold 100 cases of beans to Swoops
Company for $3 per case with terms of 2/10, n/30. On February 14, Swoops Company paid Edwards the full
amount due. Given this information, the entry to record the collection of cash by Edwards Company on
February 14 would include a debit to
27. Edwards Company sells foods wholesale. On January 15, Edwards sold 100 cases of beans to Swoops
Company for $3 per case with terms of 2/10, n/30. On January 25, Swoops Company paid Edwards the full
amount due. Given this information, the entry to record the collection of cash by Edwards Company on January
25 would include a debit to
28. Amy Company sold $8,000 of merchandise to Tory Turnbull with terms 2/10, n/30. If Tory paid for three-
fourths of the merchandise within the discount period and one-fourth after the discount period, he paid a total
of
29. Amy Company sold $8,000 of merchandise to Tory Turnbull with terms 2/10, n/30. If Tory paid for all of
the merchandise within the discount period, the journal entry that Amy will make to record the collection of
cash would include a
30. Jones Company, a customer, has been authorized to return $1,000 of goods purchased on account. The
journal entry to record this transaction is
31. Raven Company had the following account balances Sales Revenue, $100,000; Sales Returns and
Allowances, $2,400; Sales Discounts, 2,400; and Bad Debts, $400. Given these balances, the amount of net
sales is
32. Customers who do NOT pay for the merchandise that they bought on credit are referred to as
33. Bad Debt Expense is classified as a(n)
34. The direct write-off method
35. When the direct write-off method of recognizing bad debt expense is used, which of the following accounts
would NOT be used?
36. The direct write-off method of accounting for bad debts
37. The direct write-off method
38. When the direct write-off method of recognizing bad debt expense is used, the entry to write off a specific
customer account would
39. For the month of December, the records of Scrooge Corporation show the following information:
Cash received on accounts receivable
$45,000
Cash sales
30,000
Accounts receivable, December 1
80,000
Accounts receivable, December 31
75,000
Accounts receivable written off
2,000
The corporation uses the direct write-off method in accounting for uncollectible accounts receivable. What are the gross sales for the month of
December?
40. When the allowance method of recognizing bad debt expense is used, the entry to record the write-off of a
specific uncollectible account would decrease
41. When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of
a small account previously written off would
42. Allowance for Bad Debts is an example of a(n)
43. The two methods of accounting for bad debts are the direct write-off method and the allowance method.
When comparing the two, which of the following is true?
44. Using the allowance method, the journal entry required to adjust the accounting records when an amount is
collected that had previously been written off as uncollectible would probably include a credit to
45. When the allowance method is used to account for uncollectible accounts, the net amount of accounts
receivable
46. The journal entry
Account
s
Receivab
le
xxx
Allowance for Bad Debts
xxx
would be made when
47. The existing balance in Allowance for Bad Debts is ignored when which estimation method is used?
48. A method of estimating bad debts that focuses on the balance sheet rather than the income statement is the
allowance method based on
49. When a specific customer’s account is written off by a company using the allowance method, the effect on
net income and the net realizable value of the accounts receivable is
Net Income Net Realizable Value of Accounts Receivable
50. Based on the aging of its accounts receivable at December 31, Charman Company determined that the net
realizable value of the receivables at that date is $304,000. Additional information is as follows:
Accounts receivable at December 31
Allowance for bad debts at January 1
(cr.)
Accounts written off as uncollectible during the year
Charman’s Bad Debt Expense for the year ended December 31 is
51. The December 31 trial balance of Humming Company included the following accounts:
Accounts Receivable
Allowance for Bad Debts
(cr.)
Sales Revenue
Sales Returns and Allowances
If it is estimated that 1 percent of the net sales is uncollectible, the entry to record the estimate of bad debts would include a debit to Bad Debt
Expense for
52. Deuce Company uses the allowance method to estimate losses from uncollectible receivables. Net sales for
the year are $120,000, and the company estimates its bad debts as 1 percent of net sales. If there is already a
$1,200 debit balance in Allowance for Bad Debts, how much should be recorded as Bad Debt Expense?
53. Samson Corporation had sales of $1,000,000 during 2012, of which 60 percent were on credit. On
December 31, 2012, Accounts Receivable totaled $80,000, and Allowance for Bad Debts had a credit balance of
$1,200. Given this information, if uncollectible receivables are estimated to be 1/2 of 1 percent of credit sales,
the adjusting entry to account for uncollectible receivables as of December 31, 2012, would include a
54. JR Corporation has a debit balance of $3,750 in Allowance for Bad Debts. If it estimates that 2 percent of
the net sales of $1,500,000 will be uncollectible, it should debit
55. Samson Corporation had sales of $1,000,000 during 2012, of which 80 percent were on credit. On
December 31, 2012, Accounts Receivable totaled $80,000 and Allowance for Bad Debts had a credit balance of
$1,200. Given the preceding information, if uncollectible receivables are estimated to be 1/2 of 1 percent of
credit sales, the adjusting entry to account for uncollectible receivables as of December 31, 2012, would include
a
56. Following are the account balances from the December 31 trial balance of Lark Company:
Accounts Receivable
Allowance for Bad Debts
(dr)
Sales Revenue
Sales Returns and Allowances
If 1 percent of the net sales is estimated to be uncollectible, the entry to record the estimate of bad debts would include a debit to Bad Debt Expense
for
57. Following are the account balances from the December 31 trial balance of Lark Company:
Accounts Receivable
Allowance for Bad Debts
(cr)
Sales Revenue
Sales Returns and Allowances
If 10 percent of the Accounts Receivable is estimated to be uncollectible, the entry to record the estimate of bad debts would include a debit to Bad
Debt Expense for
58. Following are the account balances from the December 31 trial balance of Lark Company:
Accounts Receivable
Allowance for Bad Debts
(dr)
Sales Revenue
Sales Returns and Allowances
If 10 percent of the Accounts Receivable is estimated to be uncollectible, the entry to record the estimate of bad debts would include a debit to Bad
Debt Expense for
59. Samson Corporation had sales of $1,000,000 during 2012, of which 60 percent were on credit. On
December 31, 2012, Accounts Receivable totaled $80,000, and Allowance for Bad Debts had a credit balance of
$1,200. Given this information, if uncollectible receivables are estimated to be 3 percent of accounts receivable,
the adjusting entry as of December 31, 2012, to account for bad debts would include a
60. You have just analyzed customers’ accounts receivable through an “aging” process and have determined that
$3,000 of the accounts receivable are probably uncollectible. Noting that your trial balance shows an Allowance
for Bad Debts with a debit balance of $100, what is the correct adjusting entry?
61. Samson Corporation had sales of $1,000,000 during 2012, of which 80 percent were on credit. On
December 31, 2012, Accounts Receivable totaled $80,000 and Allowance for Bad Debts had a debit balance of
$1,200. Given this information, if uncollectible receivables are estimated to be 3 percent of accounts receivable,
the adjusting entry as of December 31, 2012, to account for bad debts would include a
62. An analysis and aging of the accounts receivable of Kaiten Company at December 31 revealed the following
data:
Accounts receivable
Allowance for bad debts (before adjustment)
(cr.)
Accounts Receivable estimated to be uncollectible
The net realizable value of the accounts receivable at December 31 should be
63. Ward Company uses the allowance method of accounting for bad debts. The following summary schedule
was prepared from an aging of accounts receivable outstanding on December 31 of the current year.
No. of Days
Probability
Outstanding
Amount
of Collection
0-31 days
$500,000
0.98
31-60 days
200,000
0.90
Over 60 days
100,000
0.80
The following additional information is available for the current year:
Net
credit
sales for
the year
$4,000,000
Allowan
ce for
bad
debts:
Balance, January 1
45,000
(cr.)
Balance before adjustment, December 31
2,000
(cr.)
If Ward bases its estimate of bad debts on the aging of accounts receivable, Bad Debt Expense for the current year ending December 31 is
64. Based on the aging of its accounts receivable at December 31, Dudikoff Company determined that the net
realizable value of the receivables at that date is $760,000. Additional information is as follows:
Accounts receivable at December 31
Allowance for bad debts at December 31 (unadjusted)
(cr.)
Dudikoff’s Bad Debt Expense for the year ended December 31 is
65. Penn Inc. reported an allowance for bad debts of $30,000 (debit) at December 31, before performing an
aging of accounts receivable. As a result of the aging, Penn Inc. determined that an estimated $52,000 of the
December 31, accounts receivable would prove uncollectible. The adjusting entry required at December 31,
would be
66. Gordie Co. reported an Allowance for Bad Debts of $20,000 (credit) at December 31, before performing an
aging of accounts receivable. As a result of the aging, Gordie determined that an estimated $28,000 of the
December 31, accounts receivable would prove uncollectible. The adjusting entry required at December 31,
would be
67. Which of the following demonstrates that a company is managing its receivables well?
68. In calculating a company’s accounts receivable turnover ratio, which of the following sets of factors would
be used?
69. The ratio that is an attempt to determine how many times, in a year, a company collects its receivables is
the
70. The ratio that shows how long it takes for a company to collect its receivables is the
71. Which of the following factors are used to compute the average collection period of accounts receivable?
72. Exhibit 6-1
Dana Company’s December 31, 2012, financial statements showed the following:
Sales revenue
$ 750,000
Average receivables
125,000
Cost of goods sold
555,000
Average inventory
215,000
Net income
105,000
Average total assets
1,220,000
Refer to Exhibit 6-1. Given the information above, Dana Company’s accounts receivable turnover ratio for 2012 was